You Don’t Have A Performance Problem. You Have An Image Problem.
In our industry, most think that it is all about performance. Generalizing, managers do everything for it, and they feel entitled when they get it. In the “old days,” that was fine. The return profile offered by hedge funds and private equity funds was ground breaking. Allocators were willing to put up with a bit of swagger.
What has changed? To start, the novelty has worn off. The industry has gone from several hundred hedge funds and private equity funds to tens of thousands. With the passing of time, allocators have also seen too many cocksure managers touting good numbers blow up when faced with adversity.
In short, the gig is up.Allocators are now searching for what any relatively aware consumer searches for when faced with choice, brand familiarity, product differentiation, trust, reliability, consistency, peer approval, and corporate values.
And let me be very clear, I am not saying that performance is not important. I am simply indicating that if you walk around and act like a pretentious ass you aren’t going to get the money. There are now too many options. Allocators would rather place capital with “good people.” And there are good people out there.
The rub? If you are a good person and only talk about performance you are still screwed. Why, because the onus is not on the allocator to figure out if you are a good person or not a good person. That is your responsibility.
The fix, think like a brand, think beyond performance. Why doesn’t Ferrari focus solely on the performance of their cars? Because every once their friends at Mercedes, Porche and McLaren kick their ass. It just looks bad to run around telling people you are the best, when you aren’t “always” the best. Ferrari therefore focuses on the intangibles and what it represents to drive a Ferrari. That is how “branding” works. You need to represent something that is bigger than the product you sell.
The press, the movies, and more make out hedge funds, and to a lesser extent private equity funds, to be big bad things that eat children. To compound the problem, alternative asset managers secure high fees on the premise that they are expert investors, yet a huge swath of the industry under performs the S&P each year. Unfortunately, it all compounds into a negative image for the industry.
Speaking holistically to asset managers, everyone kind of knows how it works. You have good years and you have bad years. We get it. Stop flaunting your numbers, when they aren’t always good. Give people a reason to hang on during the tough times. Stop telling us what you do. Start telling us what you believe in. Make us want to invest with you because of your brand, and not your numbers.
By Kyle Dunn